S&P: PDC Energy Inc. Senior Unsecured Notes Rating Lowered To 'B+' From 'BB-'; New Debt Rated 'B+' (Recovery Rating: '3')
Additionally, we assigned our 'B+' issue-level rating and '3' recovery rating to the company's 1.125% unsecured convertible notes maturing 2021 and proposed $400 million senior unsecured notes maturing 2024. The '3' recovery rating indicates our expectation for meaningful (50%-70%; lower half of the range) recovery of principal in the event of a payment default.
Our 'B+' corporate credit rating and positive rating outlook on PDC are unchanged.
The downgrade and recovery rating revision reflects the increase in expected priority debt at default under our recovery assumptions, following the recent increase in the commitments of PDC Energy's secured revolver to $700 million from $450 million. Additionally, the downgrade reflects the increased amount of debt, resulting from the recent $200 million convertible notes issuance and the proposed $400 million senior unsecured notes.
Our corporate credit rating on PDC Energy reflects our assessment of the company's weak business risk and significant financial risk profiles. These assessments incorporate the company's participation in the highly cyclical oil and gas industry, balanced production mix between liquids and natural gas, and modest scale of operations focused in the Wattenberg Field in Colorado and, most recently, the Permian Basin in Texas. The rating also includes our expectation that average funds from operations to debt will remain above 20% for the next two years.